Nifty down 14% from peak; is Indian inventory market oversold? Which sectors might lead subsequent leg of rally? Specialists weigh in

Indian inventory market has been underneath immense promoting strain since October final yr. This has dragged the benchmark Nifty 50 down by over 14 per cent from its report excessive of 26,277.35 which it hit on September 27.

The broader index, the Nifty 500, has fallen additional, down 17 per cent from its all-time excessive.

Heavy international capital outflows, weak company earnings, and slowing home financial development are the principle elements behind the latest decline.

The Nifty 50 is now on monitor to shut within the crimson for the fifth consecutive month—its longest shedding streak since 1995.

Is the Indian inventory market oversold?

Specialists are divided on whether or not the market is oversold.

Ajit Mishra, SVP of Analysis at Religare Broking, believes the market is oversold. Nevertheless, it’s not capable of rebound on account of rotational correction in key sectors.

“Markets are definitely oversold, however the rotational correction in key sectors limits the rebound and lowers the index with each passing week. Going forward, a decisive break under 22,500 in Nifty might lengthen the decline towards 22,000. To reverse this development, the index should reclaim and maintain above 23,000,” mentioned Mishra.

In response to Devarsh Vakil, Head of Prime Analysis at HDFC Securities, markets might quickly expertise some respite.

Vakil underscored that the indicators of enchancment in macroeconomic parameters counsel that the present softer patch in earnings development might quickly ease. Furthermore, the worst of the worth deterioration seems to be behind.

“We now enter a interval characterised by sectoral rotation alongside time-based correction and consolidation in choose equities. These shares will seemingly start their restoration as earnings development materialises, offering the elemental catalyst wanted for a rally in costs,” mentioned Vakil.

“This transitional section ought to provide tactical alternatives as capital shifts between sectors whereas the broader market establishes a extra sustainable basis,” Vakil mentioned.

Nevertheless, some consultants consider the market continues to be not oversold, as regardless of the latest correction, many shares are nonetheless at premium valuations.

“If we ask whether it is an oversold market, I’d argue it’s not. The bull run we noticed within the final 5 years has led to essentially stretched valuations for a lot of corporations. Regardless of the latest correction, many shares stay overvalued while you examine their valuations to their costs,” mentioned Abhishek Jain, Head of Analysis at Arihant Capital Markets.

“Information exhibits that about 60 per cent of Nifty500 corporations are nonetheless buying and selling above their five-year PE. That is why one needs to be very cautious when choosing shares,” mentioned Jain.

Which sectors might lead the subsequent leg of the rally?

Vakil believes BFSI (banking, monetary companies, and insurance coverage) ought to lead the markets larger within the subsequent rally.

He expects credit score development to speed up as authorities capital expenditure will increase after the elections and the implementation of budgetary proposals.

Vakil finds giant banks well-positioned to capitalise on this cycle, although margins might face slight strain, as RBI’s charge cuts result in mortgage repricing whereas deposit prices stay elevated. Public sector banks stand to profit from Nationwide Firm Regulation Tribunal resolutions and provision write-backs.

RBI determined to scale back the repo charge, to defend Indian rupee from falling sharply, injecting sturdy liquidity to the banking system, to loosen up threat weights on loans to NBFCs. Vakil mentioned these steps will seemingly help BFSI development going ahead.

Jain of Arihant Capital identified that the continued correction has unveiled quite a few funding alternatives.

Speaking in regards to the sectors, Jain mentioned there are a number of fascinating performs that may provide good returns in the long term.

“India’s vitality transformation affords a compelling funding alternative in energy era, transmission, and renewables. Indian IT corporations main the digital transformation are additionally promising, particularly these leveraging AI. Pharma and FMCG corporations with a concentrate on the agricultural sector even have sturdy incomes potential,” mentioned Jain.

In case of a rebound, Mishra of Religare Broking believes banking, financials, metals, vitality, and IT might outperform selectively.

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Disclaimer: This story is for instructional functions solely. The views and suggestions above are these of particular person analysts or broking corporations, not Mint. We advise traders to verify with licensed consultants earlier than making any funding selections.